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Latest Losses Steep For OSI

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By MICHAEL SASSO

msasso@tampatrib.com

Published: November 15, 2008

TAMPA - Outback Steakhouse's parent company posted a $46 million loss during its summer quarter, as the company scrambled to lower prices and get consumers to start eating out again.

Among its plans is creating more entrees that sell below $15, which would make the chain's prices more comparable with other casual dining chains, company Chief Financial Officer Dirk Montgomery said.

Tampa-based OSI has been hard hit by the downturn because consumers are cutting back on their restaurant trips, trading down from casual dining chains to fast-casual and fast-food chains, and buying more prepared foods from supermarkets.

On Friday, the company said in a conference with credit analysts that it lost $46.6 million during the quarter ended Sept. 30, compared with a loss of $16.7 million during the same quarter of 2007. Not all of that loss was related to its restaurant operations; at least $15.3 million came from a write-down in the value of some of its operations because of the slow economy.

Revenues in the quarter fell to $948.5 million from $1 billion in the same quarter last year, and sales at stores open for at least 18 months - an important measure of a restaurant's health - fell 7.9 percent at its flagship Outback brand.

Some of OSI's higher-end brands fared worse. Same-store sales fell 10.2 percent at Bonefish Grill and 9.7 percent at its Fleming's Prime Steakhouse & Wine Bar brand. Carrabba's Italian Grill was the relative star performer, turning in a drop of only 5.7 percent, according to a company document filed with the Securities and Exchange Commission. The slowdown at Fleming's is especially telling, because that high-end steakhouse had been turning in strong double-digit sales growth a few years ago.

OSI is striving to improve its financial performance by trimming some of the expenses from its supply chain and its employee costs. A big focus is on attracting more customers to Outback during the week, because weekday sales have fallen more than weekend sales, Montgomery said. Outback already has a $9.99 sirloin steak special and is experimenting with its menu to create more entrees that sell below $15, he said.

Still, things are so slow that some credit analysts Friday questioned Montgomery about whether OSI can meet its upcoming debt payments, as well as continue to comply with its debt "covenants," which are rules that among other things require the company to have a certain cash flow. As of Sept. 30, OSI had more than $1.7 billion debt on its books, much of which it acquired after being bought out by two private equity firms last year.

Standard & Poor's and Moody's Investors Service Investors Service, two big credit ratings firms, each downgraded OSI's corporate credit rating in the last two months because of its high debt level and its falling restaurant sales. Montgomery assured analysts that the company has enough cash and credit available to meet its upcoming $75 million debt payment and other debt payments.

Reporter Michael Sasso can be reached at (813) 259-7865.

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